One of the problems with living in a world with two belligerent economic powers preparing to duke it out in a trade war is the potential to get caught in the crossfire. That’s what happened when U.S. authorities requested the capture and extradition of Meng Wanzhou, the CFO of Huawei, on suspicion of allegedly defrauding multiple financial institutions in breach of U.S.-imposed bans on dealing with Iran back in December.

In our defense, we didn’t exactly have much choice in the matter. The United States is our biggest trading partner, and jeopardizing our relationship with them would be a big political and economic no-no. But it also means angering China, a country with which we’ve been politically frosty, but economically cozy with, for years.

Plenty of Canadian companies, including Tim Hortons and Bombardier (BBD.B), had sought to open up shop in China, taking advantage of what was essentially an under-served market for Canadian companies.

Among them, of course, is Canada Goose (GOOS.T).

And they were doing exceptionally well before this happened. Comparatively, revenues in North America were up 25% in 2019, but globally (and by globally we mean mainly Chinese) sales jumped 60%. If Canada Goose ever wants to see yearly revenue growth of 40% again, it’s going to need China.

Now that relations have gone from frosty to hostile, one has to wonder whether Canada Goose CEO Dani Reiss felt a strange sinking feeling when Canadian authorities dragged Meng out of Vancouver international airport in handcuffs back in December.

Here’s what he said in a Forbes interview a few months ago:

“We’re a Canadian company, so I don’t think any dip in U.S.-China relations will affect us in any way whatsoever. Canada enjoys a good trade relationship with China and our politicians continue to pursue trade agreements with China. The relationship that China has with the United States has no effect on us.”

After that, he must have seen what was coming. He had only to look at China’s treatment of Tesla (TSLA.Q) for an example:

China increased tariffs on U.S.-made automobiles entering the country from 15% to 40% in retaliation for Donald Trump’s tariff increases. Chinese consumers mostly buy locally manufactured vehicles, but U.S. companies like Tesla took the biggest hit from trade tensions by being forced to raise prices on their Model S and Model X cars by USD$20,000 in July after the new round of trade tariffs.

Now calls have gone out to boycott Canada Goose on Chinese state-run media, and mirrored on China’s social media platform WeChat.

The boycott and tariffs were reflected in their Q4 year-end results, released in May, that show the stock plummeting 30% from $66 to $45 a share.

Source: stockwatch.com

Investors promptly bailed on the stock, frightened off not by the numbers on offer—Canada Goose actually gained revenue—but by the prospect of a slowdown in growth from 40%-50% to 20% year over year.

The recovery is underway and the stock has been climbing again, despite China’s belligerence.

The logical suspicion was that this was inevitable. Maybe even from as far back as the Stephen Harper era, when he gave the Dalai Lama official Canadian citizenship and condemned China’s suppression of Falun Gong while welcoming its practitioners—both are persona non grata in China.

Now it seems that our economic prospects vis-a-vis China are tied increasingly to Donald Trump’s ego, and that is clearly unacceptable.

 

—Joseph Morton

Written By:

Joseph Morton

Joseph is a Vancouver-based author and journalist with both a communications degree and journalism diploma (and a few novels) under his belt. His joie de vivre is to spin difficult technical topics into more human-centric narratives. Buy him a coffee and he'll talk your ear off for hours about privacy issues, blockchain, cryptocurrency and martial arts. Don't talk to him if you're either a tomato, a bully, or if you're not a fan of either 1984 or Tender is the Night. No. You can still talk to him. Just be prepared to be told why you're wrong.

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